Business context and reporting period
This filing is Third Point Reinsurance Ltd.’s unaudited Form 10-Q for the three months ended March 31, 2019—not a filing under the name Siriuspoint Ltd. The company provides global specialty property and casualty reinsurance and invests through Third Point Enhanced LP (TP Fund), managed by related party Third Point LLC.
Results are affected by the August 2018 transition from separately managed investment accounts to TP Fund. This limits comparability with Q1 2018, particularly for investment income and fees.
Financial performance and position
Unless otherwise stated, amounts below are U.S. dollars in millions.
| Metric | Q1 2019 / March 31, 2019 | Q1 2018 / December 31, 2018 |
|---|---|---|
| Gross premiums written | $319.6 | $378.4 |
| Net premiums earned | $153.1 | $142.5 |
| Net investment income (loss) | $155.0 | $(2.2) |
| Total revenue | $308.0 | $140.3 |
| Net income (loss) attributable to common shareholders | $132.9 | $(26.0) |
| Basic / diluted earnings per share | $1.45 / $1.43 | $(0.26) / $(0.26) |
| Net underwriting loss | $(5.7) | $(6.4) |
| Combined ratio | 103.8% | 104.5% |
| Operating cash flow | $23.0 | $(36.7) |
| Total assets | $3,440.1 | $3,086.2 |
| Total shareholders’ equity | $1,338.9 | $1,204.6 |
| Senior notes, net of deferred costs | $114.0 | $113.9 |
Investment return on assets managed by Third Point LLC was 7.2%, compared with a negative 0.2% in Q1 2018; the S&P 500 Total Return Index gained 13.6% in Q1 2019. Basic and diluted book value per share were $14.59 and $13.95, respectively, versus $13.15 and $12.98 at year-end 2018.
Material changes versus the prior comparable period
- Net income swung to $132.9 million from a $26.0 million loss, principally reflecting $147.0 million of net investment income from the related-party fund investment. Management reported a 7.2% investment return; the underlying fund’s summarized $168.1 million net income is not the company’s proportional result.
- Gross premiums written fell 15.5% to $319.6 million, while net premiums earned rose 7.4% to $153.1 million. The company cited non-renewed contracts and lower premium from extensions and cancellations, partly offset by $74.1 million of new premiums and prior-period premium estimate increases.
- The combined ratio improved 0.7 percentage points to 103.8%, but remained above 100%, indicating an underwriting loss. The loss ratio improved to 62.1%; acquisition cost and general and administrative expense ratios increased.
- Prior-year reserves had $2.7 million of net favorable development, but acquisition-cost adjustments largely offset the benefit. Favorable workers’ compensation development was partly offset by adverse general liability and multi-line development.
- Operating cash flow improved to $23.0 million. Investing cash outflow was $63.0 million, mainly reflecting $70.0 million contributed to TP Fund; cash, cash equivalents and restricted cash declined $42.2 million to $671.2 million.
Outlook, commentary, risks and unusual items
- Management described reinsurance market conditions as challenging: catastrophe pricing improved on loss-impacted programs, while pricing on other contracts remained broadly flat. It noted some improvement in terms and pricing in capital-relief structures and was cautiously optimistic about further opportunities.
- The company planned to continue expanding into specialty and property catastrophe business and evaluate additional lines in 2019. It wrote $41.5 million of property catastrophe business in Q1.
- Management expected available cash, operating cash flow and investment income to meet projected operating, capital expenditure and debt-service requirements for at least the next 12 months, while noting that additional financing could be needed if resources prove insufficient. There is no quantified earnings or premium guidance.
- Liquidity includes substantial restricted balances: $208.5 million of cash secured letters of credit and $408.4 million of restricted cash securing reinsurance contracts; debt securities of $241.1 million also secured reinsurance contracts. Total cash and restricted cash was $671.2 million. Management reported $1,251.8 million of unrestricted liquid investment assets under its definition.
- The company had $115 million principal amount of 7.0% senior notes due February 2025, guaranteed by the parent, and was in compliance with debt covenants. Its $200 million unsecured letter-of-credit facility was due to expire July 30, 2019. The filing says the company was compliant with letter-of-credit facility covenants.
- Key risks include investment volatility and limited control over TP Fund, dependence on Third Point LLC, potential illiquidity or valuation uncertainty in fund assets, reserve estimation risk, reinsurance market cyclicality, catastrophe and credit losses, counterparty exposure, and dependence on letter-of-credit facilities. A 10% equity-market decline was estimated to reduce company value by $80.1 million; a 100-basis-point rate increase was estimated to reduce net investments by $18.0 million.
- TP Fund is a related-party variable-interest entity that the company does not consolidate because it lacks investment decision-making control. Management noted it often cannot access underlying security-level financial information to independently corroborate fund valuations. The company held approximately 87.7% of the fund’s NAV; TP GP controlled investment decisions.
- No material legal proceedings were reported, and the filing stated there were no material changes to previously disclosed risk factors. Disclosure controls were assessed as effective.
Most important facts for investors to verify
- Confirm the issuer identity: the supplied metadata says Siriuspoint Ltd., but this filing identifies Third Point Reinsurance Ltd.
- Assess how much of the quarter’s profit and book-value increase depended on TP Fund investment performance, and how the post-2018 fund structure affects comparisons.
- Review TP Fund’s NAV valuation, related-party fee arrangements and loss-carryforward mechanics; Q1 related-party fees were reported at $4.8 million in total, including fees within the fund investment result.
- Evaluate underwriting profitability and reserve adequacy, including the 103.8% combined ratio, premium mix, and offsetting favorable and adverse reserve development.
- Check renewal or replacement of the unsecured letter-of-credit facility due July 30, 2019, and distinguish unrestricted liquidity from cash and investments pledged as collateral.
- Track exposure to private-label, non-investment-grade asset-backed securities and the possibility of losses or constrained liquidity during market stress.